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International Journal of Business and Social Science Vol. 5, No. 8; July 2014

Marketing Strategies for Japanese Industry within the U.S. Market

George Terunao Itagoshi Chuo University Graduate School of Policy Studies 742 Higashinakano Hachioji City 192-0393 Japani

Abstract

Japanese-made commercial animation is often called in the and Europe. Its beginnings go as far back as which debuted on NBC in 1963 in the United States. After that, Anime was increasingly introduced in the United States through the years. Thus, Pokémon became a mass in the U.S. and this has lead Japanese to believe they can tap in to the U.S. mass market. Since 2003 Japanese Anime sales have declined although the number of attendees of Anime conventions has increased each year. By exposing Japanese Anime to the U.S market - we will analyze the current competitive market. In order to analyze both business behaviors, we have to understand both markets and their competitive advantage or the uniqueness of their characteristics. To compete in this commercial segment – the strategies and routes to survive this competition. The ultimate goal being to understand Anime’s competitive position within the market segments to strategize.

Keywords: Anime; ; niche market; subculture; animation ; young adult market; Children market;

Introduction

Japanese-made commercial animation is often called Anime in the United States and Europe. Its beginnings go as far back as Astro Boy which debuted on NBC in 1963 in the United States. After that, Anime was increasingly introduced in the United States through the years. Since its more mainstream beginnings, Anime has more recently been introduced as subculture into niche markets in the United States. Meanwhile, Japanese companies have always focused on mass market in the United States since it has always been received well with that strategy in .

It became a recognized movement with having earned popularity in 1989. This movie raised box office revenues of $553,171 and grabbed many ’ interest to the Japanese language and Japanese culture. (JETRO, 2013) After the success of Akira, distribution and sales channels were set up to develop the Anime market. This previous success was then followed by works such as , , and so on, which were also supported by Americans. Nevertheless there was still doubt as to whether Japanese Animation had truly become a popular in the United States at that time. Concurrently, I was doing business for promoting the Japanese Anime since 1995. I ran a Japanese bookstore, a character-goods retail store, etc. which were in Atlanta, , New York, etc. and carry out sale of comics and anime video for the spread of Anime.

In 1999 Pokémon a TV Anime series was released as another big hit, and again Japanese Anime became a part of mainstream pop culture in the United States. It became not only between some enthusiastic fans, but the brand gained recognition widely also in ordinary homes which were rarely exposed to Japanese content. The movie Pokémon the First Movie was distributed in over 3000 theater screens with box office earnings of $85.7 million. (JETRO, 2013) films also scored a success and Pokémon made its popularity an immovable object. Director ’s from won the Academy Award for best animated feature- length film in 2003 following this. The movie, DVD and other character related item sales record over $4,840 million in 2003. Spirited Away was consistently on the top charts of Anime DVD sales until 2005. (JETRO, 2013) It did not seem that Anime hits the United States and overseas till then.

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Japanese studios then became aware of what can be expected to be able to obtain large revenues exceeding the Japanese market, when achieving such heights in the U.S. market. It was believed that if Anime achieved hits within the United States, and overseas, there was nothing left for them to accomplish.

However, the profit in the Anime market fell off in 2003; falling in the sales to $217 million, which was half of its peaks of $428 million set in 2012. (JETRO, 2013) Although marched out to the mainstream under the influence of irresistible consumer forces temporarily, with expectation of Japanese companies, those forces changed towards only a hardcore fan-based market. There is still a belief amongst Japanese companies that in the United States Anime still can advance by mass-marketing in such situations. However, the popularity of Anime in its present condition as shown above is not conclusive to profits.

How to expose Japanese Anime to the U.S market; we will analyze the current competitive market. In order to analyze both business behaviors, we have to understand both markets and their competitive advantage or the uniqueness of their characteristics. How one can compete in which segment – the strategies and routes to survive this competition. With the ultimate goal is being to understand Anime’s competitive position within the market segments to strategize.

(in $100 million)

Fig. 1: Presumed Market Size of Japanese Anime Market in the US (JETRO 2013)

Definition of Anime and Animation market in the U.S

Character of Japanese Anime

Most Japanese Anime was created for Japanese audience and most pieces are a derivative of “Manga,” which is a form of comic books. There are very few cases when an Anime is created from other source materials. Examples include a game software concept like Pokémon or Academy Award winner Spirited Away which was created from an original screenplay and not from Manga comics.

Graphic novels was the way Anime was introduced to the U.S. market; they had well-written storylines with unique characters. They also included strong messages from the authors that gave life changing experiences to the readers. These stories were different from those often depicted by superhero comics where, generally, American action heroes are often seen fighting for justice. has long featured strict market differences between what is created for adults versus children. In contrast the same Anime may appeal to consumers from all ranges of age in Japan. Anime also has cult following called “Otaku.” There are more than 100 Anime events held in the U.S. every year. (AnimeCons) At these events fans dress up as their favorite characters and participate in events to share and communicate about new products. They also often use these conventions to shop for character consumer goods, made domestically or imported from Japan.

281 International Journal of Business and Social Science Vol. 5, No. 8; July 2014

Segmentation of US Animation Market Structure

U.S. market has two different key market segments, one for young adult and one for children. Although it is difficult to discern by which age to divide them, broadly, content made for those aged 13 and over falls into a young adult category. In the United States, such works are treated within the “PG-13” (Parents strongly cautioned) category, for those consumers less than 13-years-old. Since violence, fear inducing images, nudity, vulgar words, and other sensitive constructs are considered within this category, a guardian's severe attention is required. It does not divide by gender. Outside of these two segments, there the adult segment with graphic nudity and gay contents.

Fig. 2: Segmentation of US Animation Market

2.2.1 Children Market

Children market piece does not require a prerequisite knowledge of subject or storyline before watching the pieces to enjoy and relate to the characters. Children will most likely be introduced to the Anime piece by being exposed by their parents leaving the television on or they might see it in passing. Children just absorb the content as shown in the Anime without any references to which country the character lives in. Because children are receptive to the characters as they are shown on television, there often needs to be connections different forms of character exposure, such as retail goods. To sustain the character exposure, companies must invest in advertising the characters within many more media channels; often a huge financial investment. However once the audience likes a character they are loyal to the Anime conglomerate they will not only watch the show but to go to , buy and other related character goods. Once you reach this level of success it is highly capable to appeal to mass market.

The Lion King and Beauty and the Beast by are examples of this success. Additional examples from other studios include Toy Story and Cars from and and Madagascar from DreamWorks.

In this same category Studio Ghibli has produced Spirited Away and from Japan. There are nationally treasured modern-day classics of Anime in Japan that have been going on for a couple of decades. , , Chibi Maruko-chan also from the children’s segment have been huge successes.

However these franchises will not all work in the U.S. just yet. One of the reasons is that the U.S. has much stricter regulations compared to Japan. Violence, nudity, smoking and alcohol are usually not as strictly regulated in children’s animation in Japan. Another reason these children’s Anime in Japan doesn’t work in the U.S. because there is so much of a cultural aspect that is incorporated in the story line.

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Similarities with the children’s market segment with the U.S. and Japanese market are Anime for children in Japan are not based on Manga comics. American Anime is all created for Anime and does not derive from another product. Pokémon was an Anime created from a and franchises from Studio Ghibli did not derive from comics.

2.2.2 Young Adult Market

Young adult segment focuses more on their niche interests compared to children market. They are looking for specific subjects they are interested in, so they can relate to the storyline of Anime and its characters. Once they get hooked to Anime, they will find franchises they would want to watch and try to find more information on this subject. They exchange information with friends and find new franchises to watch.

Leading American properties in this market segment are , and Spider-Man, leading titles of Marvel and DC Comics.

These properties all are action heroes and they have been based off pre-existing comics. Not only have they made these stories into Anime but into movies. In the same genre there are Japanese franchises like , and . When you go to Anime conventions you will find many teenagers and college students dressed as the characters from these Anime. Storylines are complex and they tend to display different types of personalities, and these elements are enjoyable for this age group. In this segment most of the Anime are based off of Manga comics that are created through the same formula as the young adult market Anime in the U.S.

Scope of Animation Industry

U.S. Animation Industry

There is the big difference between Japan and the United States in corporate strategy. The separation policy of the content work and the television station which Federal Communications Commission (FCC) performed in 1970 is a primary cause. This is based on two laws and regulations called a Prime Time Access Rule (PTAR) and a Financial Interest and Syndication Rule, widely known as Fin-Syn Rules. It is forbidden for regional television stations to create their own content other than the local news. Furthermore it was illegal for local stations to have program production companies, forcing the independent subcontracting of a television station. Under these rules a television station becomes a mere transmission path, and many networks would be purchased by the companies their works were associated with primarily. (JRI, 2001) From such a background, in 1995 purchased Capital Cities/ ABC Inc. for $19 billion in cash and stock. (LA Times, 1995) In addition, Time Warner (TBS, CNN), News Corporation (FOX), Viacom (CBS), etc. become a media conglomerate.

I hear that it is a huge company compound form of a media conglomerate in the strategy of the U.S. animation company that such a motion shows. These companies repeated a tie-ups and M&A, performing the alliance of states against a powerful enemy to reorganize between companies exceeding the boundaries of the industry. As a result, original works are made and the system which carries out distribution of it to the world through the media of its company is built by these conglomerates. Each media channel and distribution were then controlled, the synergistic effects of integration between companies and all the value chains were held, and a competitive advantage is gained by this vertical integration system. (Kagami, 2007)

For example, 's business model has five business segments with the .

1. Media Networks (TV station in cable network, TV network, TV distribution, Hulu, etc.) 2. Parks and Resorts (Theme park, Resort facility, Cruise) 3. Studio (Theater, Home entertainment, TV program, Music, Musical) 4. Consumer Products (License, Publication, Retail) 5. Interactive (Game, Internet)

As mentioned above, it is the feature of this U.S. media conglomerate company to have the work power from the upper part of a river in connection with content from a lower tributary of that river, distribution power, advertisement power, and sales force. The enterprise is entangled intricately so that a synergistic effect may be heard. Although it is difficult to extract the sales of only an animation section within this, Walt Disney Pictures, Pixar, and Marvel would become "studio entertainment” incorporated as within The Walt Disney Company. The total revenues of Disney in the 2013 fiscal year changed to $45,041 million, and sales of this section changed to about 13% of $5,979 million. (Disney, 2013)

283 International Journal of Business and Social Science Vol. 5, No. 8; July 2014

Table.1: The Walt Disney Company; Revenue by Business Segmentation (Disney, 2013)

(in millions) 2013 2012 2011 Revenues; Media Networks 20,356 19,436 18,714 Parks and Resorts 14,087 12,920 11,797 Studio Entertainment 5,979 5,825 6,351 Consumer Products 3,555 3,252 3,049 Interactive 1,064 845 982 $45,041 42,278 40,893

Japanese Animation Industry

Most Japanese companies are small and medium-sized enterprises of an specialty to the U.S. media conglomerate which is diversified management. 174 Japanese animation companies are located in Japan, and, among those studios 42% have net capital of around $100,000 ($1=100 yen) or less and are staffed by 10 or fewer employees. Among these companies many sustain themselves through subcontract and a sub-subcontract work for the more established businesses in this industry. (Teikoku Databank, 2010) Therefore, these companies are unable to provide and maintain many of the services that American conglomerates accomplish, including distribution, sales, or advertisement their respective businesses. Financing alone is difficult, and thus these businesses cannot make promotional campaigns on a large-scale, either.

Top five typical Japanese companies are , , TMS Entertainment, and Production IG. Among these companies, Toei Animation is the biggest in the industry; Pierrot and Production IG are Anime specialty companies. However, Sunrise would shift to become a toy manufacturer in 1994, it would then become a subsidiary of present Bandai Holdings, and the TMS Entertainment would become a game company , as it is now a subsidiary of the present in 1992. Thus, unlike U.S. companies, it is Japanese companies’ nature to simply continue to transition towards other companies which specialize in the content industry.

To define the scale of a typical exceptional Japanese company; total sales for the 2009 fiscal year for Toei Animation is $201.8 million ($1=100yen). For Sunrise, in the same period, it was $95 million; with TMS Entertainment earning $93.2 million, Pierrot earning $49.4 million, and Production IG earning $42.2 million (Teikoku Databank, 2010). Even with these relatively small figures, these five companies are considered major companies in Japan, and thus show a contrast compared to the financial might of just one U.S. business, The Walt Disney Company. If the Toei Animation is compared with Disney, there is a difference of the sales of 100 times or more, and the "studio entertainment section" of Disney which explained previously has nearly 20 times more in their differences. Thus, it is clear that there is a vast difference in management resources.

Table.2: Toei Animation; Net Sales by Business Segmentation (Toei, 2013)

(in $ millions, $1=100yen) 2013 2012 Net Sales; Films 126 91 Licensing 111 101 Sales of Goods 70 92 Others 166 274 $336 $330

Competition-Confrontation or Avoidance

In the preceding chapter, the differences in resources of a Japan-U.S. company have become clear. In order for a Japanese company where resources are scarce to compete with an U.S. conglomerate company, it turns out that all-out confrontation is not wise. It is not opposition against the media conglomerate company in the United States with manufacturing from an upper part of a river to a lower part of a river, distribution, advertisement, and sales force.

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The importance of competitive strategy is positioning an enterprise by taking advantage of the point superior to its competitors, so that the values may be made into the maximum.

(Porter, 1980) That is, the strategic positioning which can employ the feature of Japanese Anime efficiently, as it will call upon the young adult market which is a niche market.

In fact, from the late , in which Anime had begun its acceptance international, the American comic industries, such as Marvel and DC Comic, were depressed. Moreover, Pixar or DreamWorks which make the children market oriented CG animation elated had not distinguished themselves yet, either. However, Disney purchased Pixar by the exchange of shares of $7.4 billion in 2006 (CNN, 2006) This buy play was the fusion of Disney, which depended on old animation manufacture technique of pen and ink, versus Pixar, which relied upon using the digital manufacture technique. (CNET, 2006) Moreover , who at the time was CEO of Pixar, was also the founder of Apple, Inc., 50.6% of the stocks of the company were held, unifying the movie industry and IT industry; thus Disney would an alliance to Jobs, a big topic for media innovation those days. Thereby, Toy Story and the 2007 animation movie Ratatouille sent a hit precedent, by winning an Academy Award every year, to the world of the force of capital strength, distribution capability, etc. of Disney behind its mighty studio Pixar.

Moreover, Disney purchased Marvel Entertainment for $4 billion in 2009, and advanced it also towards the young adult market. (NY Times, 2009) To Marvel, Disney offered not only funding but Disney's creative technology, and multimedia deployment and an overseas network. It succeeded in strengthening the brand of Marvel's popular character (Anime! Anime!, 2009) For example, The Avengers release in 2012 set a new record, topping all previous North America opening box office receipts, and a world box office revenue of $1 billion, in record time. (Itagoshi, 2013) Their background with precise and great marketing strategies was carried out with aggressive advertisements and promotion behind it. The results were an unprecedented hit and regained the popularity of the Marvel brand in Hollywood. These contents are replacing Anime now. It is also one of the reasons which have caused the downturn of the sales of Anime.

Moreover, Dragon Ball and the One Piece which belong to the children market in Japan belong to the young adult market in the United States. This is due to the severely restrictive regulation of broadcast television in the United States. For example, SANJI, a character of the Anime series One Piece, has always smoked a cigarette in Japanese broadcasts. However, such behavior is not desirable by United States cultural standards. Therefore, the depiction of a cigarette was censored by changing the cigarette to a lollipop candy, effectively and dramatically altering the context of that character. If the nihilistic image which here is symbolized through a cigarette is changed to a candy, a character makeup will be changed in the eyes of the consumer. Therefore, the impression of the whole story will change by changing a setup of one character.

Probably, it will be better for carrying in to the children market by avoiding such points actively. Thus, the Japanese company which cannot do great advertisement and promotion since management resources are low is difficult for using all channels and distribution, and cannot expect sufficient exposure of a work. Moreover, if the topic of rating regulations on Anime is also considered, it can be judged that it is difficult to oppose Anime works, against those from Disney and Time Warner, by the children market.

Advantages of Market Building as a Niche

Profits are continuing to fall since 2003 as Fig. 1 of Chapter 1 showed, but the number of attendance of the Anime event is increasing in inverse proportion to it every year. For example, 2013 saw an increase in attendance of 20% compared with last year for 161,000 persons, and attendance of this Anime exposition held in Los Angeles every year is the highest number has seen its highest numbers over its 22 years history. (Anime Expo, 2013) Thus, one can conclude that Anime popularity is an upward rise certainly. However, popularity is not proportional to sales. It is considered that this is also a reflection of a niche market. A niche is the customer group defined still more narrowly than a segment, and is a group who desires consolidation of a clear benefit. There is also a way which becomes a leader in a small-scale market, i.e., a niche market, rather than fighting by mass-marketing. (Kotler, 2011)

The majority of profits from Anime in Japan results from the sales of character goods by their domestic Children market. It is not a sales return of visual media (movie, television, and DVDs). For example, 2012 fiscal year sales revenue from Toei Animation can be broken down to 35% film productions and 56% is from their copyright business, which includes such things as character goods. (Toei Animation, 2013) 285 International Journal of Business and Social Science Vol. 5, No. 8; July 2014

One Piece is actually broadcast as Anime for children in Japan, on weekend early morning blocks designed for children to view and listen. However, popular Japanese Anime properties, such as One Piece etc., are repackaged in the United States, is often places in the young adult generation instead.

Anime is a subculture, and this generation enjoys popularity just because it is unique. Moreover, it is U.S. business practice that a children-oriented Anime rewrites an original as an original scenario in animation. For example, as for Pokémon, the story for the United States is rewritten for this audience. The fact that Anime is generally being adapted from comics originally means that any rewriting of the original source material may collapse its view from the general public, so such ideas tend to be kept at arm's length by the author. Therefore it is thought that the Children market entry in the United States is difficult to confront in this point, and future projects should concentrate by making the young adult market into the main battlefield.

Among Anime fans, although he would like to view and listen to Anime, there is dissatisfaction that there are many works in which English etc. are not localized. Therefore, subtitles were attached, to improve exposure. However legally licensed efforts were still not sufficient leading to many individual consumers creating their own translations and subtitle projects. These already illegal acts were then often distributed, without consent by the content creators, by uploads to video sharing sites, such as YouTube. Due to the legal issues behind these activities there was a motion which was going to sweep these away put forth by Japanese companies. However, in order to consider a tactic to not alienate fans and potential consumers instead of sweeping away such projects the industry should examine the strategy in which coexistence with eager fan bases can be induced. For example, currently there is a wave of projects where consumers can view subtitled Anime online through subscription programs as they are broadcast simultaneously globally, increasing the amount of Anime programs available, reducing production times and also reducing costs to the consumer; while improving exposure to Japanese studios, potentially improving revenue streams through collected advertising money and providing viewership data for which to evaluate what consumer goods to market to such subscribers.

Moreover, Japanese companies are investing in the large-scale comic convention held in or New York every year now. However, the past several years, a mass media company which Disney, Time Warner, etc. injects a large amount of fund, and has a booth took the lead, and has displayed their financial might with enormous elaborate displays. It is difficult to compete with such capital strength even if a company does their best how much in such a place. Instead the focus should be turned towards the many the smaller more Anime focused events hosted in cities all over the country, of which there are approximately 100 now annually. In such areas, the mass media company which is doing mass-marketing with the main target has not displayed not much aggressively. Moreover, in most cases Disney, Fox and Warner generally ignore such regional events entirely. Therefore, it is thought that a possibility that fans, often seen to be hidden within more rural or suburban areas, can be better reached through such niche markets if a more effective tactic is examined and carried out to exploit the campaign positively.

Conclusion

An animation market is divided into the children market and the young adult market in the United States. And Anime has argued that the young adult market is the main battlefield. It is begun by a passive cause to see the children market, and in order to increase the promotion used as the cause, and an opportunity to see Anime by all channels, immense capital strength is needed. Therefore, since it is difficult to win if the children market is not approached by a company with greater financial management resources, as inquired in Chapter 3 and 5, it is recommended to call off competition into this market. And when Japanese companies of limited management resources supplies the children market, it should be poised with strategies which allows those brands to tie up with a U.S. company with channel, distribution, and advertisement power. For example, the work of Studio Ghibli is rationed by Disney in the United States. It was through Disney's fiscal power, that the work of Studio Ghibli has an opportunity to many viewers' eyes, and it can be defined through the results of high box office revenue and/or the Academy Award for an award that was earned.

On the other hand, the young adult is a market where participation of an individual idea is high. It is not necessary to carry out everybody in broader terms. What is necessary is to simply approach fans, with small focused numbers, eager within an established core, often called a niche market. Attention and resources should be given towards the more than 100 small to mid-sized regional events that transpire all over the country, where Anime content dominates over mainstream media. 286 © Center for Promoting Ideas, USA www.jbssnet.com

The nerd consumer population, often concentrated in more rural or suburban areas, hides a more effective and often ignored consumer base which can be gained if approached through proper active marketing. With such a strategy that encloses a customer, the unique features of a Japanese work may be set forth in the forefront and may fully be able to be showcased and accepted in spite of minimal capital strength possessed by Japanese companies.

Although often Japanese companies aim at mass-marketing, this course of action requires strategic reconsideration. First of all, the Anime should encompass the young adult market, and should move to capture the niche market. Marketing must be honestly performed from this viewpoint, using management resources for useful purposes, deriving from a strategy where costs do not matter most. Instead of groping future mass-market advancement through random hits, a process developed by the management resources stored within Japanese Anime industry can be contrived through the development of a more grassroots process. That is, an effective strategy is that opposes a head-on confrontation with Disney, the major media source in the United States, or Time Warner, but decide upon an independent path for Anime as a form of media and culture.

References

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